Corporation Tax: increasing the rate of Research and Development expenditure credit
Published 22 November 2017
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Who is likely to be affected
This change will affect companies that carry out Research and Development (R&D) and claim Research and Development Expenditure Credit (RDEC).
General description of the measure
This measure increases the tax relief for large companies (and small and medium sized enterprises in some cases) that carry out qualifying R&D and claim the RDEC.
The RDEC (also known as the ‘Above the Line’ credit) is a standalone credit that is brought into account as a receipt in calculating profits. The current general rate is set as 11% of qualifying R&D expenditure. This measure increases the rate of the RDEC from 11% to 12%.
Policy objective
Increasing the amount of R&D carried out by companies is a key part of the government’s aim to increase productivity and promote growth.
R&D tax credits support business investment by allowing companies to claim an enhanced Corporation Tax deduction or payable credit on their R&D costs.
A rate increase of the RDEC from 11% to 12%, means that large companies can claim more support for their R&D, increasing the incentive to undertake R&D.
Background to the measure
This measure was announced at Autumn Budget 2017.
Detailed proposal
Operative date
The increase in the RDEC rate will have effect for expenditure incurred on or after
1 January 2018.
Current law
Current law on the RDEC is contained in chapter 6A of part 3 of Corporation Tax Act 2009 (CTA 2009).
Proposed revisions
Legislation will be introduced in Finance Bill 2017-18 amending section 104M of CTA 2009.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| -5 | -60 | -170 | -175 | -170 | -175 |
These figures are set out in Table 2.1 of Autumn Budget 2017 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.
Economic impact
The costing accounts for a behavioural response of businesses increasing investment in R&D, however, the measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure has no impact on individuals or households as it only affects businesses.
There is no impact on family formation, stability or breakdown.
Equalities impacts
This measure increases the tax relief to qualifying companies. After careful consideration, the government has concluded that there are no significant impacts on groups of people sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a positive impact on 4,000 businesses claiming RDEC. Increasing the rate will support business investment as companies can now claim more support for their R&D.
This measure is expected to have a negligible impact on businesses administrative burdens. Negligible one-off costs include updating their systems to reflect the increased rate. There will also be a negligible cost where some companies make claims for R&D activity where they have not previously done so or where companies begin R&D work where they have not done previously. It is not expected there will be any ongoing costs. There are no impacts on civil society organisations.
Operational impact (£m) (HMRC or other)
There will be no significant operational impact.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups. We will monitor this measure through information collected from tax returns.
Further advice
If you have any questions about this change, please contact Ruth Froggatt on telephone: 03000 544942 or email: ruth.froggatt@hmrc.gsi.gov.uk